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NOI/Property Value article

How is the NOI/Property Value calculated for commercial real estate investments and developments? What are the factors that the NOI/Property Value takes into consideration when shown in a proforma income statement, and what is ignored? Why is the NOI/Property Value useful for investment real estate? These are the questions that are explored using the Proforma Example in this article.

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Video Title: Learn about the NOI/Property Value

Video Publication_Date: Friday, March 24, 2017

Video Duration: 2:48

Video Description:
The topic for this commercial real estate investment analysis video is NOI/Property Value. Throughout the video planEASe Software is used to illustrate NOI/Property Value. The video does not use the current Proforma Example, but all the factors that the NOI/Property Value are sensitive to are covered.

201020112012201320142015
Total Gross Income$365,472$372,443$370,410$376,040$384,217$414,321
Less: Vacancy & Credit Loss19,0843,20214,6205,0493,50150,321
Effective Income$346,387$369,241$355,790$370,992$380,717$364,000
Total Operating Expenses$69,400$71,244$73,141$75,094$77,103$79,170
Net Operating Income$276,987$297,997$282,649$295,898$303,614$284,830
Sale Value$3,329,006$3,591,128$3,800,275$3,698,723$3,795,175$3,560,371
NOI/Property Value8.32%8.30%7.44%8.00%8.00%8.00%

In this case the 2012 NOI/Property Value was calculated by:

2012 Net Operating Income (NOI)$282,649
divide by the Price$3,800,275
equals the 2012 NOI/Property Value7.44%


Considers:
  • Sale Value, Scheduled Income(Current Year Only), Vacancies (Current Year Only), Expenses (Current Year Only)
Ignores:
  • Time Value of Money, Sale Proceeds, All Financing (Loans), Other Years NOI, All Taxes

    ... and a lot of other things
Why is NOI/Property Value useful?

The NOI/Property Value ratio is also known as the overall capitalization rate, which tests the assumption for the appreciation of the property. The only difference between this ratio and the Capitalization Rate shown on a planEASe Income Statement is that the Cap Rate uses the original purchase price, and the NOI/Property Value uses the sale value at the end of the year that the NOI/Property Value ratio is calculating.

What is the NOI/Property Value Sensitive to:

Sale Value, Scheduled Income(Current Year Only), Vacancies (Current Year Only), Expenses (Current Year Only)

The Net Operating Income Property Value is shown in these planEASe Reports:

Written by
Michael Feakins, CCIM
of planEASe Software